3 ways to build a more resilient SME ecosystem

Last month at the Global Entrepreneurship Congress, which took place for the first time on African soil, I saw a 14-year-old girl pitch an idea for an app to alleviate the traffic light problem in South Africa, writes By Perry Kamel, senior business development Manager for SMEs in Africa at Microsoft.

Traffic light outages are a huge challenge in the country and this app alerts drivers to lights that are out and calculates the time it will take for them to get through. The driver can then decide whether to continue or find an alternative route.

When asked if Africa is ready for digital transformation, I always say: Where there are problems in Africa, there are disruptions. Innovations like this traffic light app – or the now famous M-KOPA Solar – are proof of this.

But if these innovations are to succeed, we as ecosystem players still need to collaborate better and make some much-needed changes in the way we support SMEs. Below are three areas of focus that I believe can fundamentally change the way Africa’s SME ecosystems function.

Understand that the whole will be greater than the sum of the parts

There is a myriad of different ecosystem players across the African continent. There are those who provide funding, those who incubate and train, and those who provide services to help small businesses operate effectively. Then, there are entrepreneurs at different business life stages, with different motivations for being in business. There are those who have started a business out of choice and those who have started out of necessity, due to insufficient jobs.

The point here is that the playing field is vast. We cannot work in isolation, where we impact small pools of start-ups at a time. We need a collective effort and a more holistic intervention.

When helping a startup to prepare for a pitching competition, for example, it’s not enough to just give them access to a presentation specialist. There are other fields a start-up needs to consider. What operational impact will the win have on their business? How can they ensure they are ready to deliver on their promises? Other relevant role players need to jump in and support the start-up on all areas of impact.

The challenge is that too many role players still view collective efforts as competition. We need to realise that we are not competing, but are instead working together to achieve a common goal. By pooling resources, we can create consolidated bundle offerings, which both support SMEs and create shared business value for all role players.

In Ghana, for example, Microsoft has collaborated with Tigo Business, Lenovo, ITWORX and Zepto. Together, we provide SMEs with connectivity, devices, software, financial expertise and local content. In Nigeria, we are looking to do the same by partnering with Standard Bank of Nigeria.

SMEs need to be more aware of what tools and resources are available to them, no matter which service provider they speak to. If there is a greater understanding of all the different efforts underway, then there is a real opportunity to combine efforts and budgets to do the work more efficiently and cost effectively.

Connect supply and demand deliberately

Looking at the market system overall, there is still a disconnect between the supply of goods and services from small businesses, and the demand from large corporations and governments.

The reality is that if a small business is not afforded the opportunity of receiving business, they will never get out of the starting block. Finding work as a small business is never easy at the beginning: they have no track record and sceptics are weary of what level of quality to expect.

However, to ensure small businesses have the economic impact we desire, we need corporations and governments to provide a certain percentage of work to small businesses. This includes having a risk mitigation strategy in place to handle potential fallouts, either due to a lack of quality or risk of total collapse. Such fallouts do and will occur, but will provide valuable lessons and experience to enable overall growth.

Giving money to startups will always carry additional risk – change the model if we must

The saying ‘money makes the world go around’ is unfortunately true. To make the entrepreneurial world go around, entrepreneurs need money. 80 per cent – 90 per cent of new businesses fail within the first year – often due to the lack of funding to float their businesses, despite initial lift-off support.

Funding entrepreneurs and enabling SME ecosystems always carries a risk. Again, start-ups and SMEs lack a track record and typically do not have collateral. Furthermore, many are still informal, which means they have just about no chance of receiving any funding. If SME ecosystems in Africa could find ways to de-risk financing SMEs in non-traditional ways, the number of businesses who succeed in year one will increase dramatically. But it will require very innovative thinking on our part.

Nigeria has identified the cloud and data analytics as a solution. According to new Microsoft report, entitled ‘Cloud for Global Good Policy Roadmap’, Microfinance Institutions (MFIs) are crucial providers of finance for Nigerian SMEs, but they struggle with high operational costs while reaching customers and carrying out business. Cloud computing can help MFIs streamline and reduce these costs; open new, cost-effective channels to reach customers; more easily collect, store, and analyse customer data to better manage risk of default; and securely scale services without having to invest in costly rural IT infrastructure.

Cloud and mobile technology can also be used to find new ways of managing risk. Across the continent, digital financial services providers, such as Tala Mobile, are using data and advanced cloud analytics to generate alternate credit scoring mechanisms and boost lending to unserved customers.

For informal SMEs, the cloud can help bridge the knowledge gap between SMEs and those seeking to assist them, while providing easier avenues to formalisation. For example, Catalyst for Growth (C4G), which assesses the impact of Business Development Service (BDS) providers, recently launched a cloud-based platform to analyse BDS and SME data to identify effective support mechanisms and match investors with high potential SMEs.

The time to act is now

These focus areas will not be quick or easy to apply. However, in the last one and a half years, we have seen more significant progress than ever before. The modernization of SMEs is high on the agenda for many local governments, and telcos and banks are becoming more open to collaboration talks as they see SMEs leapfrogging to cloud technology. If we as an ecosystem share our lessons and collaborate where possible, without losing our individual identities, we can build a solid foundation where entrepreneurs can enjoy long-term success.